Demand for risky assets skyrocketed yesterday, when US bonds increased and Treasury yields decreased. And, even if the Federal Reserve said it would continue to adhere to a super-soft monetary policy, both the euro and pound remained steadfast.
"Economic recovery is far from complete," said Fed Chairman Jerome Powell. "We will continue to provide the support our economy needs," he added.
The central bank also brought up the need for additional incentives from the government. According to Powell, there should be some changes in the fiscal policy.
At the moment, the one that is hit the most by the crisis is the US labor market. But even though the unemployment rate is now at 6.2%, Treasury Secretary Janet Yellen believes that the measures taken by the current administration is correct, because everything is starting to turn up.
And yesterday, the government revealed that the Biden administration is considering another ambitious plan for the economy. Democrats, which includes US President Joe Biden, wants to spend another $ 3 trillion to address problems in infrastructure and climate. The plan also includes investment in human capital and new health initiatives.
But the most controversial in the package is the possible changes in tax. According to Biden, these are:
- Increase in the corporate tax rate from 21% to 28%
- Cancellation of tax incentives for a number of companies with various forms of ownership
- An increase in the income tax rate for individuals earning more than USD 400,000.
- Expansion of inheritance tax
- Higher tax rate for individuals whose annual income is at least $ 1 million per year
But in spite of this news, EUR / USD remained calm. However, a consolidation below 1.1875 will certainly increase pressure on the pair, which will resume the bearish trend and lead to a further drop towards 1.1835 and 1.1790. But if the quote goes above 1.1940, the euro will head towards the 20th figure, where a break above would result in another jump towards 1.2050 and 1.2110.
With regards to statistics, the European Central Bank reported yesterday that the balance of payments in the EU declined this January, reaching only € 30 billion, which is clearly lower than its € 37 billion amount a month earlier. Apparently, monthly trade surplus jumped to € 39 billion euros, while the yearly surplus reached € 263 billion, which is approximately 2.3% of the GDP.
The Bundesbank also published a report yesterday, but it was more of an economic forecast for the rest of the year. It said the German economy would contract rather sharply in the first quarter, with the service sector plummeting due to the quarantine restrictions.
As for the United States, the National Association of Realtors indicated that US home sales fell much stronger than expected, dropping by 6.6% this February, thereby reaching only 6.22 million a year. But the average home price was $ 313,000, which is 3.1% higher than its price a month earlier.
Today, reports on the state of the UK labor market will be published, and it may lead to a strong fall in GBP provided that the figures are much higher than anticipated. The UK Office for National Statistics expects the unemployment rate to rise to 5.2%, from only 5.1% a month earlier.
Therefore, in GBP/USD, bulls need to firmly protect 1.3820, as a break below it would set off a further drop towards 1.3775 and 1.3730. But if the quote returns to 1.3870, the pound may climb back to 1.3915 and 1.3955.
